We'll Continue To Focus On low income-affordable housing concentrating on EWS: Deo Shankar Tripathi, MD and CEO, Aadhar Housing Finance

Broadly speaking, what’s your take on the housing finance industry today? Are most of the headwinds behind us now?

There is a huge requirement of housing and housing finance due to existing unmet demand in urban and rural areas and additional demand for urban housing estimated at 25 million by 2030 by RICS and Knight Frank. Other studies have estimated a much higher requirement both for urban and rural housing. This demand comes from rapid urbanisation and the growing number of nuclear families mainly in the cities and also the migration of rural people to nearby small towns. About 95 per cent requirement in terms of units will be from affordable housing up to 30 lac in non-metro and 45 lac in metro cities. Housing For All scheme through its various verticals has been game-changer. Thus the housing and housing finance sector will continue to be a huge growth opportunity in years ahead.

Housing finance growth from 2014 onwards was quite robust with HFCs growth. It was over 19 per cent CAGR as Public sector banks were struggling with NPA. However, after 2107, PSBs have also increasingly focused on home and other retail loans.

Liquidity crises post-September 18 hard-hit HFC/NBFC sector as a result growth of home loan in HFCs slowed down to 9 per cent however Banks posted growth of 19 per cent

The housing sector was, however, suffering from twin problem; 1) huge pile-up of unsold inventory approximately 6.50 lac houses as per the report of property consultant Anrock and 2) sale of under-construction units by developers to home seekers under subvention schemes most of these projects are stalled at a different stage of construction. From 2014 to 2018 few HFCs and NBFCs disproportionately extended loans to these developers. Due to liquidity issues, the further flow of funds to these developers was almost slowed down, signalling the possibility of default of their dues to these lenders.

The Government and RBI have taken enough measures to address liquidity and confidence crises of NBFC and HFCs, interest rate reduction, increasing tax exemption on interest on home loans, support to estimated 1600 stalled projects through specially created stress fund of 25000 cr, providing tax exemption to developers on notional rent on unsold inventory, capital gains benefit for 2 houses, reduction of GST to 1 per cent for affordable and 5 per cent for normal housing, relaxation in ECB guidelines, Partial credit guarantee scheme to help NBFC to sell pool to PSU banks and 30000 cr funds to NHB for providing refinance to HFCs. etc.

Meanwhile general slow down in economy impacted drop in demand in housing and also loan against property to the extent of around 25/30 per cent, in addition to those customers opting to avoid purchasing under-construction properties, investors class of buyers are completely out of the market and also a cautious approach of HFCs awaiting normalcy in liquidity position. Banks lending to HFCs and NBFCs have been more or less normalised but still low rated or high leveraged NBFCs and HFCs are struggling for liquidity.

Slight uptick in delinquencies is also surfacing due to the impact of a slow down in the economy.

Most of the headwinds are behind now. The housing finance market is gradually becoming normal but it is likely to take 9/12 months to get the full impact of various measures by government and RBI.

The prolonged crises of over 15 months are likely to signal a meaningful change in the business model of both HFCs and developers. The HFCs are now predominantly focusing on home loans; exploring for asset-light model “ originate hold/ distribute and sale, through Co origination, loan pool sale, or other collaborative models as well as strengthening capital base. Developers are moving to affordable housing to largely cater low income and mid-size housing which will continue to be in high demand.

How have things changed since Blackstone became a majority shareholder in Aadhar? Was this a distressed asset buyout?

Aadhar Housing from the beginning developed a robust individual retail-led low income focused business model. Its branches and business are well diversified across 20 states and union territory. This helped the Company to continue its business at slightly lower scales even during the tough liquidity crisis Post-September 18 with low delinquency.

The company was bought out based on its robust niche business model and diversified good book. I don’t think it was a distress buyout rather prevailing market-based win-win deal.

• Post equity stake purchase by Blackstone, it’s been business as usual for the Company. We Co tinge to focus on lending to Economically Weaker Sections (EWS) and Low Income Group (LIG) affordable homes. There hasn’t been any major change in business strategy.

• Blackstone capital infusion of Rs 800 crs into the Company has also added to the confidence of the bankers and also helped the Company debt-equity ratio improving substantially.

• Equity ownership changing hands to Blackstone has given added comfort to the lenders who are providing adequate credit support as per our business requirement

• Blackstone coming in has also improved the employee sentiment and confidence.

• The overall corporate governance structure has got enhanced with Blackstone coming in. The board is strengthened and the process for robust IT platform has begun.

3. Do you think the government’s recent measures to turn around the sector, including the 135 bps rate cut, are impactful enough? What is really needed at this stage, in your view? What structural changes need to be brought about to drive sustainable growth over the next decade?

• The various measures by the government have certainly been helpful to ease the funding to the sector and address crises of confidence issues.

REPO rate cut has been gradually bringing down the cost of borrowing of HFCs, customers, and others. Transmission of rate cut always happens with some lag.

The initiative on demand side including external benchmarking of home loans by banks is very helpfull to encourage home buyers. Low interest in a home improves the affordability of home aspirants.

• This has given the confidence to the lenders as well as the investors.

• Housing is a very important sector for the economy, GDP growth and job creation in view of its backward and forward linkage to other sectors. It completes the financial inclusion process.

Few structural changes could be

a, To continue PMAY scheme after 2022,

b, uniform stamp duty across the nation.

c, Digitisation and dematerialization of property record for a seamless transaction and avoid fraud.

d, simplified RERA for informal or small builders Say constructing 20/25 flats each of 300/400 carpet area. These builders are the main suppliers of flats to low-income people at comparatively low cost.

e, To continue with existing tax exemption up to 3,50 lac Interest on Housing loans up to 45 lac and extend it to any amount of housing loans.

f, Empower NHB to provide credit enhancement to enable HFC to raise funds from PF/Pension/Insurance and overseas.•

g, Credit Guarantee Fund Trust for Low Income Housing (CGFTLIH) was launched in 2012 on lines of the popular Credit Guarantee Fund Trust available to small and micro-units, but this has been almost a non-starter mainly due to rigid criteria. This facility is not available to lenders for loans under PMAY popular CLSS scheme. The objective of the CLSS subsidy and guarantee both have a different purpose. While the CLSS subsidy is to improve the affordability of EWS/LIG, the credit guarantee is to provide confidence and safeguard against various deficiencies in the documentation of informal segment loan seeker. The scheme can be extended for all home loans up to 10/15 lakh to EWS/LIG segment. The operation of the scheme is simplified to encourage lenders to avail it.

In your viewpoint, how is the 25,000 Crore AIF going to benefit the sector, if at all?

The announcement by the finance minister for creation of Rs 25,000 Cr real estate fund is one of the far-reaching decisions taken by the government to provide last mile funding and reviving the estimated 1600 stalled projects This will revive 80 per cent of the stalled projects and will now cover all the projects irrespective of their stage of construction, whether they are NCLT or NPA, excepting those which are in liquidation are excluded. This announcement will not only revive the real estate sector but also will give a big boost to the Indian economy. It will create a multiplier effect in job creation and boost the other segments like cement, steel and a lot of industries that are linked with real estate. This will end the long wait of those who booked flats in these projects.

So, I think, this is an extraordinary decision taken by the government. The success lies in how quickly and transparently the scheme is executed.

SBI has recently launched its “Residential Builder Finance with Buyer Guarantee” product. Do you intend to launch something along the same lines?

As the name suggests “Residential Builder Finance with Buyer Guarantee” home loan comes with a guarantee in case the project is not completed on time by the builder. SBI has added to the confidence of the home buyers as they are fairly certain of timely delivery of the projects which are funded and monitored by SBI too.

As far as Aadhar is concerned, we as a policy do not provide builder finance, hence we are not looking at such schemes as we cannot have any control on the builder.

Moreover, as of now, 90 per cent of low-income flats are constructed by informal or small builders. We lend only when a project is a minimum 80per cent complete as these are very small projects. Also, more than 50 per cent of people in the low-income segment prefer self-construction on a small piece of residential land. Builder led supply is not available in many locations.

What’s your budget wish list for the sector?

The liquidity issues In NBFC/HFC have been one of the major contributors to the economic slowdown. It is resolved to some extent. The foremost priority should be a quick revival of the real estate sector and normalcy in NBFC/HFCs. The various reforms announced by RBI/government may go on simultaneously.

The wish list for the budget follows:

• In the last fiscal budget, tax exemption on home loan interest was increased from 2 lakh to 3.50 lakh for loans up to Rs 45 lakh availed by March 2020. This may be extended for the next 5 years without a ceiling of Rs 45 lakh.

• Rs 30000/ crore fund placed with NHB for refinancing and liquidity infusion in HFC can be increased. The eligibility criteria can also be modified to support the liquidity of smaller HFCs who are still struggling for liquidity. High rated large HFCs can get huge refinance through this fund which otherwise can raise money from multiple sources at a cheaper cost.

• The tenure of refinancing from 7/10 years be considered for an increase to 15/20 years to address Asset liability mismatches issues.

• Access to long term funds from PF/Insurance/Debt capital market is required for raising long term resources to provide home loans for 25/30 years. To provide credit enhancement to low rated HFCs, NHB is authorised to provide a guarantee to investors to the extent of 10/15 per cent of issuances with a necessary cap on issuances based on net financials of HFCs.

• Credit Guarantee Fund Trust for Low Income Housing (CGFTLIH) was launched in 2012 on lines of the popular Credit Guarantee Fund Trust available to small and micro-units, but this has been almost a non-starter mainly due to rigid criteria. This facility is not available to lenders for loans under PMAY popular CLSS scheme. The objective of the CLSS subsidy and guarantee both have a different purpose. While the CLSS subsidy is to improve the affordability of EWS/LIG, the credit guarantee is to provide confidence and safeguard against various deficiencies in the documentation of informal segment loan seeker. The scheme can be extended for all home loans up to 10/15 lakh to EWS/LIG segment. The operation of the scheme is simplified to encourage lenders to avail it.

• The annual income ceiling for LIG (Low-income group) is 6 lakh. Income tax exemption may kindly be extended up to Rs 6 Lakh to all.

Lastly, what are your business goals for the upcoming fiscal?

We will continue to focus on low income-affordable housing concentrating on EWS and LIG across all 20 states and union territory. Further, we continue to deepen our reach to fulfill the homeownership dreams of the EWS and LIG. We plan to grow at a decent pace of 20/25 per cent Objective is not to chase growth but to pursue decent profitable quality growth with well-controlled delinquencies. Our motto is Customer First Employee First.